If you are interested in starting a business in Cyprus, there are some conditions you need to consider. Any entrepreneur can start a business in Cyprus and depending on the business venture, size, and nature, can either create a company or register as self-employed. Following is a brief description of what you need to know before proceeding with starting your business.
Forming a business as Self-employed
A self-employed individual can apply to the Cyprus Registrar of Companies for the approval and registration of a ‘trade name’ at a cost not exceeding €150.
The business is taxed on a trading profits basis. There is a non-taxable threshold for an individual capped at €19.500 per annum, meaning for trading profits up to €19.500 there is no tax liability. The individual can withdraw all trading profits without paying any additional taxes.
All self-employed individuals must contribute social insurance at a percentage of 14.6% on their income. The contributions are subject to a minimum and a maximum amount, which depends on the individuals’ profession or nature of trade.
Obligation to prepare and submit audited financial statements to the Inland Revenue is mandatory for a self-employed individual if the sales/turnover exceeds the amount of €70.000 per annum. Otherwise, there is no obligation for audited financial statements. However, they must submit an annual self-employed tax return.
A self-employed individual have the option to employ personnel and register with Social Insurance as an employer, gaining the same obligations to Social Insurance as those of the Companies are analyzed below.
If the individual decides to cease trading operations, there are no additional costs incurred.
An individual can register an own-managed company with the Cyprus Registrar of Companies with the individual declared the sole director and shareholder of the Company simultaneously.
To register the company, the individual must apply first for a name approval with the Cyprus Registrar of Companies and following approval register the Company. Registration of the company requires the assignment of an accountant and/or solicitor for the preparation of all required legal documents for the company’s formation. The approximate cost is €1.100 for small companies.
In the case where the Company is profitable, this is subject to a Corporation Tax at the rate of 12,5%. Also, there is a 17% Special Defence Contribution (SDC) if the individual receives dividends from the Company under the capacity of shareholders. If the individual does not receive dividends, then the 17% SDC obligation fells on deemed distribution of dividends which is calculated by multiplying the net profits after tax by 70%.
There is a special exemption to individuals who are tax residents in the Republic, but non-Cyprus domiciled analyzed in the following article.
It is therefore advisable for the individual who is tax resident and Cyprus domiciled to absorb all profits by receiving salaries especially when the Company’s gains do not exceed €19.500 before the payment of wages to the individual. This implies that there will be no taxable profits and therefore, no Corporation Tax and SDC liabilities.
The Social Insurance contributions of a Company are in total 19,3% of the gross salaries. 7,8% is deducted from the salary of the employee, and 11,5% relates to the employer’s contribution.
All Companies are required to appoint an auditor, prepare Audited Financial Statements, and submit them annually to the Registrar of Companies and the Inland Revenue together with a Corporation Tax Return. This implies the incurrence of audit and professional fees for the preparation and submission of the Audited Financial Statements and the Corporation Tax Return.
There is a special tax relief for an individual who was resident outside the Republic of Cyprus before the commencement of his employment in the Republic and his gross annual income from employment does not exceed €100.000.
An individual is considered a tax resident if he spends more than 183 days in the Republic. However, as of 1st January 2017, there was the introduction of the 60-days rule, and an individual can be a tax resident (subject to conditions) even if he does not spend 183 days in the Republic.
Tax residency issues will also be analyzed in the following article.
The special relief is calculated by applying a percentage of 20% on the individual’s gross income but with a maximum amount of €8.550. For individuals with gross annual income from employment of more than €100.000, there is a 50% special tax relief. Subject to conditions, the exemption applies for ten years commencing from the tax year following the year of relocation to the Republic for employment.
Also, there is an annual levy and a statutory fee for the submission of an annual return to the Registrar of Companies amounting to approximately €400.
The dissolution of a Company will incur professional fees and costs which are expected to exceed €1.000.
It is advisable for young professionals who are intending to establish their business, to obtain professional advice before deciding whether to trade as a self-employed or through a Company. The decision depends on the level of expected profits and the results of a cost-benefit analysis that is necessary to be carried out. At CX Financia, we are happy to take this task. For more information, you may contact us at [email protected] and visit our website for more details.